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LPL Financial Research is excited to introduce Midyear Outlook: A Shift In Market Control, with financial market forecasts, economic insights, and investment guidance for the remainder of the year. We hope you find this informational and as always, we encourage you to reach out to us at any time to discuss market updates or any questions that you might have. Enjoy!

A long-overdue and highly anticipated shift is underway that may change the character of the rest of thiseconomic cycle.

Specifically, the Federal Reserve (Fed) has finally been able to follow through on itsprojected rate hike path, including the second hike for 2017 announced at the conclusion of the FederalOpen Market Committee’s June 13–14 meeting. This move highlights two important signals — first,the Fed increasingly trusts that the economy has largely met its dual mandate of 2% inflation and fullemployment, but second and of perhaps even greater importance, it appears there may finally be a newdriver — the long-awaited arrival of fiscal policy — that may provide the economic backstop that monetarypolicy has offered throughout this recent expansion.

Here are several key themes focused on how the change in market leadership may shift through year-endand beyond:

Business fundamentals: Now taking control. A focus on well-run businesses with the potential for

earnings gains may favor active management.

Economic growth: Confidence not enough, yet. Business and consumer confidence has improved,

but greater policy clarity may be needed to spur growth.

Fiscal policy: Pro-growth potential, but when? Fiscal policy support remains likely, but the

timetable may be pushed back to 2018.

Even with fiscal policy on standby, the return to business fundamentals, such as renewed corporateearnings growth, can now act as a market catalyst. The Fed will still have its role to play, but monetarypolicy is powering down as the driver of financial market strength. Thus far in 2017, the consistency ofthis new fiscal-led dynamic has been uneven, leading to shifting market leadership. It is important forinvestors to appreciate that despite these developments, U.S. equity indexes managed to progress throughthe first half of 2017 either at, or very near, all-time highs.

As political distractions have periodically surfaced, anticipation of a full transfer away from monetarypolicy has diminished and stock market leadership has at times turned away from those areas bestpositioned to benefit from the proposed fiscal policies. While the latest delays could push some key fiscalpolicy initiatives into 2018, the odds still favor corporate tax reform ultimately being achieved, along withprogress on deregulation and potentially infrastructure at a later date.

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